Agency

Question 1

What is an agency relationship?

Answer 1

Principal appoints agent to act on principal’s behalf and agent consents to act
* Agent (not principal) has fiduciary obligation to principal
* Must have principal and agent’s consent
* Agent acts primarily for principal’s benefit
* Agent acts subject to principal’s control (degree of control does not have to be significant)

Question 2

Formation of agency relationship

Answer 2

1. Principal must have contractual capacity (not minor, incompetent)
2. Agent does not need contractual capacity (just can’t have no mental capacity)
3. Consent of both parties
4. Equal dignities rule
   * If agency agreement or agreement that agent enters into on behalf of principal would fall under SOF = agency agreement must be in writing
5. Consideration is not required (agent does not need to be paid)

Question 3

Duties of agent

Answer 3

1. Duty of care: owe principal reasonable care in carrying out agency and degree varies based on any special skills agent has
2. Duty of loyalty: must treat principal fairly (cannot compete w/ principal, use principal’s property for own benefit, etc.)
3. Duty of obedience: obey all reasonable directions from principal

*All fiduciary duties to principal

Question 4

Duties of principal

Answer 4

1. Duty to compensate for services unless circumstances indicate otherwise
2. Duty to indemnify agent for expenses incurred in servicing principal

*Not fiduciary duties (only common law obligations)

Question 5

Actual authority

Answer 5

If based on the principal’s words or conduct, a reasonable person in the agent’s position would believe that the principal has given them authority to act on the principal’s behalf. Must have actual authority at the time of action to bind principal to action.

Actual authority can be either express or implied:
* Express = principal conveyed in words
* Implied = agent reasonably believes exists (custom, incidental to express authority, etc.)

Question 6

Termination of actual authority

Answer 6

Can be terminated at:
* Specified time
* Specified event
* After reasonable time (if not specified)
* Change of circumstances
* Breach of fiduciary duty
* Either party’s unilateral termination
* Operation of law (ex. death of principal terminates only if agent has notice of death)

Question 7

Apparent authority

Answer 7

Principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent is authorized to act on the principal’s behalf.
* Can be created through an agent’s title or position that a principal gives them
* Can be created if principal remains silent in the presence of someone claiming to be their agent
* Can exist even after actual authority has been terminated if third party does not know of termination (“lingering apparent authority”)

Apparent authority can exist when actual authority does not exist.

Agent’s title or position can also create actual authority if the agent reasonably believes they can act as an agent based on the responsibilities that customarily accompany the title or position given.

Question 8

Termination of apparent authority

Answer 8

Must inform the third party that agent no longer has authority to bind principal (actual authority has been terminated)

Question 9

Ratification

Answer 9

If there was no actual or apparent authority at the time of agent’s transaction, but after the transaction has been completed, the principal validates it, the principal is bound by the agent’s transaction.
* Express: oral or written affirmation
* Implied: principal accepts benefits

Ratification cannot be used to alter the rights of intervening parties.

Ex. of intervening parties:
X sells Y’s car to A without Y’s authority for $10k. Not knowing about this sale, Y agrees to sell their car to B for $5k. After Y learns about X’s sale, Y wants to ratify Y’s sale to A because it is more profitable -> Y cannot do this because it would alter the rights of B as an intervening party.

Question 10

Requirements for ratification

Answer 10

Principal must
1. Have knowledge of (or have reason to know) all material facts regarding the transaction
2. Accept the entire transaction (cannot only ratify part of it)
3. Have capacity

Question 11

Undisclosed principals

Answer 11

At the time of agent’s acting on behalf of the principal, if the third party has no notice that the agent is agent on behalf of a principal , the principal is “undisclosed”
* Partially disclosed principal : third party has notice that agent is acting on behalf of a principal but has no notice of the principal’s identity

Question 12

When can a third party hold a principal liable for a contracts claim?

Answer 12

Actions taken under actual authority, apparent authority, or ratification
* Principal is bound, but agent is ** not** bound

BUT if principal is ** undisclosed** or ** partially undisclosed**
* Principal is bound ** and** agent is bound

Question 13

Define

Employer
Employee
Independent Contractor

Answer 13

Employer: principal who employs an agent with the right to control the agent

Employee: agent employed by the employer

Independent contractor: agent contractually obligated to do the work, but not controlled in how the work is done

Question 14

When can a third party hold a principal liable for the torts committed by their agent?

Answer 14

Through vicarious liability for torts in the scope of an employee’s employment (not independent contractor)

Remember that holding principal liable does not mean that the employee is not also liable for the torts they commit

On the MEE, discuss both the direct (employee) and vicarious (employer) liability theories

Question 15

How do you determine whether an agent is an employee vs. an independent contractor?

Answer 15

Employee: subject to the principal as to means used to achieve a particular result and the result

Independent contractor: subject to the principal as to the result only

Factors to consider:
* Degree of skill required (more skilled = IC)
* Who has tools and facilities used
* Period of employment (shorter = IC)
* Basis of compensation (time vs. per job)
* Distinct business (IC)

On MEE, discuss some of these factors when answering a question on whether an agent is an employee or independent contractor (analysis is more important than conclusion)

Question 16

How do you determine whether action was “in the scope” of an employee’s employment?

Answer 16

1. Was the conduct “of the kind” that the agent was hired to perform?
2. Did the tort occur “on the job” (within the time and space limits of employment)
   Detour: minor deviation from employer’s directions (still within scope)
   Frolic: substantial deviation from employer’s directions (no longer within scope)
3. Was the conduct actuated at least in part to benefit the principal?

Ex. Employee is sent to drop something in headquarters, on the way back to the office, employee stops to pick up dry cleaning and hits a pedestrian = employer is still liable because stopping for drycleaning on the way back to wrok would be a detour

Question 17

Can principals be held liable for intentional torts committed by employees?

Answer 17

Not liable for intentional torts that are not normally within the scope of employment.

However, intentional torts will fall within the scope of employment (and hold principal liable) if the conduct is:
* Conduct natural from the nature of the job;
* Motivated to serve the employer; or
* Specifically authorized or ratified by the employer

Question 18

Borrowed employees

Answer 18

Employee of one employer doing services for another employer.

Loaning employer is still held liable for the tortious conduct of their loaned employee (not the borrowing employer).

Question 19

Under what two types of theories can principal’s be held liable for torts?

Answer 19

1. Principal’s own negligence (direct liability): liable for harm caused by their negligence in selecting, training, retaining, supervising, or otherwise controlling the agent
2. Agent’s negligence or intentional tort (vicarious liability): liable for tortious conduct of employee

On the MEE, even if there is no vicarious liability, always check for principal’s direct liability for their own negligence